The "Fractal" Limit Order Buster: The Latest Market Manipulation Algo Gimmick

Tyler Durden's picture

Yesterday, just after 8 pm Eastern we presented a very curious move in NatGas trading on the NYMEX when under very light volume, the NG performed something akin to a sine wave expansion, with about 12 peaks and troughs with ever increasing amplitude, until ultimately it triggered a major sell off when it appeared to touch off an avalanche of limit orders about 3% from the prevailing price, leading to an almost instantaneous 8% drop in Natgas which was promptly recovered. We dubbed this a fractal pattern, and after a follow up with the trade forensics experts at Nanex, it appears this was a very spot on designation, as zooming into the pattern indicates increasing levels of self-similarity and complexity. Yet aesthetic observations aside, this latest algo appears to be nothing more than a limit order-busting market manipulation device, whose sole purpose is to destabilize and generate volatility for the creator of the algo. Curiously, as Nanex indicates, the algo is not limited to Natgas but also appears to recur in other far more liquid instruments, such as the SPY, when a comparable fractal pattern was observed in broad daylight. As to how the algo itself profits from the price instability it generates: we are unsure. One could certainly trade the increased volatility through derivatives, by buying vol cheap in advance of such as limit order triggered waterfall, especially in very thin markets, and then selling the vol at the apex of a given move. Obviously, this is merely speculation. That said, we are dead certain Finra and the SEC are promptly pursuing the trader responsible for this glaring attempt at market manipulation in order to find out precisely how one profits from such fractal algorithms.

Below we present increasing levels of granularity associated with last night's attempt to manipulate the price of NatGas, courtesy of Nanex.

In the following chart, trades and quotes are plotted sequentially as they occur. As such, no data is lost. Exchange's bid and ask prices are colored according to the legend on the left. Trades are colored in white.

Activity before the drop, prices only:

Activity before the drop, prices and size:

Activity after the drop, prices only:

Activity after the drop, prices and size:

Zoom in of the pattern:


But wait there's more. It's one thing to manipulate a thinly traded, specialized market. It is another to go for the SPY, which is precisely what this next HFT algo seems to have done.

Exchange Code Legend:

1     NQEX     Nasdaq Exchange
3     NYSE     New York Stock Exchange
4     AMEX     American Stock Exchange
5     CBOE     Chicago Board Options Exchange
6     ISEX     International Securities Exchange
7     PACF     NYSE ARCA
8     CINC     National Stock Exchange
9     PHIL     Philidelphia Stock Exchange
11     BOST     Boston Stock/Options Exchange
17     CHIC     Chicago Stock Exchange
59     NTRF     NYSE Trade Reporting Facility
60     BATS     BATS Trading
63     BATY     BATS Y Exchange
64     EDGE     Direct Edge A
65     EDGX     Direct Edge X


Obviously we were joking that someone, anyone, at the SEC or Finra would very possibly care about this. We also are joking when we say that as ever increasing examples of this kind of market manipulation become prevalent and demonstrated by sites such as Zero Hedge, that the investing public will rush to put their money into a casino which is more and more obviously geared to profit only those whose HQs are either located south of Houston street, or who can create nanosecond sine waves designed merely to knock out anyone stupid enough to still trade stocks.

But more seriously: it appears this is nothing short of an attempt to push people away from limit orders and to use market exclusively. Alas, the problem there is that one will likely be subpennyed to the point where the implementation shortfall is large enough to cause substantial losses... Very likely by the very same firm that was responsible for this algo to begin with.

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Mercury's picture

It's like a mine sweeper.

Don Quixotic's picture

If you really want to see something crazy look at the volume for JPM Aug options. Specifically the Calls @ 43 and Puts @ 38... WTF!!!!!

quintago's picture

Hard to see how it's going to spike...which leads one to believe that a certain caller, err collar of the market knows something.

Monedas's picture

Yeah ! Like the one which has the rotating reel of chains !

Conrad Murray's picture

Mary Schapiro is an enemy of the United States of America; a true domestic terrorist. It is time for her to be called out, put on trial, and sent to prison. Are there no individuals in Congress willing to act in order to prevent our capital markets from completely collapsing? Will the State force citizens to take action on their own?

Cognitive Dissonance's picture

Are there no individuals in Congress willing to act in order to prevent our capital markets from completely collapsing?


Will the State force citizens to take action on their own?

Yes. But will we? Moral cowardice is at an all time high and rising. Bullish actually.

jerry_theking_lawler's picture

sorry, you are wrong. they just haven't pushed the right people yet. they are playing with the 'investment' community. wait til this spills over to the people living start messing with these peoples lives, etc, that is when you will have real trouble....jmho

Cognitive Dissonance's picture

Maybe you didn't understand my answer. I agreed that 'they' would need to force the citizens to fight back. I then questioned if the people would actually fight back.

Just exactly what do you think will happen when the first brave souls start pushing back? The American mind (I am an American) is for the most part conditioned to respond to fear, a conditioning that has been implemented over the last 3 generations. Turn up the fear and the American mind screams for it to be taken away. So when "they" start messing with the "right" people what do you think will happen to the fear index when those "right" people are beaten down?

In fact I would like to know who those "right" people are. The middle class? The numbers on food stamps are through the roof, well beyond the poor class. Real unemployment is more than 20%. Property values have dropped by a third from the peak and are still dropping. The market is still lower nearly 15 years later. Real wages have declined over the last 20 years. This isn't messing with the "right" people? The "right" people will put it off and put it off until they have lost everything.

People will only act like they have nothing left to lose when they have nothing left to lose. By that time the screws will be turned so tight that it will take a massive uprising to break free. The elite will not let go easily. In fact the sociopath will destroy everything rather than give it up.

The time is now, not later.

GeneMarchbanks's picture

Not to mention that as fear takes over you can't really get at the real causes of your impoverishment, so you turn on each other. Angry people usually aren't clear minded.

CPL's picture

People assume anger and cowardice as seperate things.  They are two sides of the same coin.  Both require someone to ignore reality.


now rage, is emotion that is worth talking about.  Attack until it's dead, bloodied, beaten and useless.


Otherwise CD is correct.  Cowardice is bullish.  Being angry is the exact same as cowardace if nothing is done about it.  I think we've all told our kids it's wasted energy at one point.  Stupid that society builds a idea of anger being useful only if it's spend on mopping.  Anger is useful only if the outcome is the desired effect.

duo's picture

Wait until participation in demonstrations, or maybe even voting for the wrong candidate, is a condition for having your UI or Snap payments stopped. 

SRV - ES339's picture

None of them own houses (or used to), buy gas, pay for heat / electric, buy food, pay usurious rates on credit cards, have been laid off, been cut off unemployment?

mkkby's picture

You are seriously delusional.  I told a story about how I threw away a parking ticket.  The 6 people at the table expressed real fear just imagining disobeying authority in such a minor way... even after I explained that's it's been 2 years and nothing has happened to me.  These people live in abject fear of authority.

MayIMommaDogFace2theBananaPatch's picture

Could you pass the Seroquel, please?  <drool>

mfoste1's picture

haha americans are far far too lazy and brainwashed by the tele to do anything radical. More than half of americans are either comatose by illicit drugs, legal drugs, tobacco or alcohol.

The Count's picture

Keen observation. There is a reason that in spite of the so-called war on drugs (which is a sham) the powers that be not only profit from the drug trade (hmmm, remember the billions Wachovia laundered and only got a fine for) but keep the masses pacified by dope.

Oh regional Indian's picture

Interesting. On one side, the west, Japanese business-men in suits lie about in drink induced stupor, the anti-thesis of their daytime attitude.

One the other, the east, Sister Britain, sozzled tot he gills in warm beer and fine scotch. Lads and laddettes, sprawled all over Industrial England, sozzled. 

Austraila is an alcoholic nation too, just like Late Britain.

I think the comatose-ness is global now. Indians are really hard to rile up. Can't miss TV.


truont's picture

That said, we are dead certain Finra and the SEC are promptly pursuing the trader responsible for this glaring attempt at market manipulation in order to find out precisely how one profits from such fractal algorithms.

Don't hold your breath...

CPL's picture

you know what counters a fractal algo.


One.  Single.  Integer.  One number that's it.


Gimme a sec, allow me to step on this.

CPL's picture

There we go...fixed.


Fucking dick heads had it everywhere.  All it takes is one number to counter an HFT to spin into the ditch.  One single number. 

Anyone have it yet?  Work it out.  Be back in an hour to see if anyone figured it out..

CPL's picture

Anyone want to see a magic trick.  I will help push the "gains" on two major traders into the ditch.

Spalding_Smailes's picture

With what .... ? 


So from some cabin in saskatchewan you have become a market maker


I guess the bc bud is getting more potent all the time ... Lol


Mr. Singularity

GoinFawr's picture

Shouldn't you be unloading someone's piano right now?

Spalding_Smailes's picture



I did two runs for Caterpillar and another run down south already ( started at 4:30 a.m. )


$440.00 is enough for today I'm going out drinking ( patron ) with the godfather before tipoff

CPL's picture

That's all you did today?  Did you cash out baby boy?

CPL's picture



TADA!!!  Magic trick done.  Ass.  Not a market maker.  I trade against machines, I build them, put the shitacular software on them and I have an iron ring as a master engineer.


The math they are screwing around with is EASY to understand.  Basic shit.  Grade 7 math.


Would you like to see another magic trick?  Just for you I put in a cock block trade for CAT btw since you like holding long.  1 stock @ 0 dollars.  About what the company is worth.  I bet the HFT's that helped you today, will be your worst nemisis tommorrow.

Dave Thomas's picture

Nice Shit analogy Rick.

CPL's picture

Yes and close.




Buy one stock in any of the "top 200" put your cover price at zero and leave it alone.  A human can understand what is worth shit.  An ALGO can't.  So long as you have 1 share at 0 dollars that ALGO sits and thinks about the bids.  Calculates it then...flash crash...or flash pump.

Try it.


Apple looked like it was having a great day until I shorted one single stock  Then I shorted a single stock on BAC, JPM, GS, C and then watched them start to collapse around 15 minutes later.  Been fucking around with the home HFT to see how it reacts.  Want to have company dump.


Short a tiny amount of shares and put the price at zero.  You aren't trading with people. You are trading with very, very dumb machines.

Goldtoothchimp09's picture

i can put an order at 0.01 ...but not zero??

CPL's picture

There is an amazing utility called a phone.

Steps required for retail traders.

  1. pick up phone
  2. call broker
  3. argue with broker
  4. put price in while they argue about your money and tell them to fuck off some more or give me the manager.


GoinFawr's picture

! Guys at a buncha desks gonna be scratchin` their headz instead of their nutz early if you wanna save them from transferring a rash.

mickeyman's picture

If a butterfly flaps its wings in a jewellry store, can we expect the Comex to default?

GoinFawr's picture

only if five margin hikes in as many days doesn`t buy them some time. Wait a sec, does that include the de facto default of delivering 'physical' in the form of SLV shares?

HungrySeagull's picture


Here is someone who sees without seeing.

One day there will be a one hell of a butterfly and when IT (Butterfly or Computer Tech take pick) flaps a Storm rises.





TruthInSunshine's picture

I'm glad the exchanges are keeping close tabs on all of this, and minimizing any perception of anything funny or strange at play, because even though there's mostly central bank fiatski in continuous recirc mode propping up precious equities, they certaintly wouldn't want retail investors (other than the captured and involuntary 401(k)/IRA/Pension crowd) to ever think the markets could possibly be rigged, because those people might not choose to return to solid, long-term investing in equities traded on the public exchanges, which are clearly traded under a well-oiled system that represents a true bedrock of integrity, order and equal disclosure.





fuu's picture

Aaaaaaaaaand this is why i don't even bother trading anymore. It is no longer investing, it is pure gambling.

dracos_ghost's picture

But by all means, don't play online poker. That's evil.

fuzed's picture

No the Poker people are being taken down, because their game's too honest.

HOUSE Bank Rules, boys & girls.

slewie the pi-rat's picture

i think we can safely make that past tense, now:  "...have been taken down..." 

house way = no freaking way, jose!

this may help the brick'n'mortar card games.  speaking of which, i'm looking for a stake into the $1 mil buy-in holdem tourney.  can someone help me design a goobermint grant request? 

NotApplicable's picture

From what I hear from friends locally, casinos are removing low-profit card rooms and replacing them with video poker machines.

RockyRacoon's picture

Oh, they'll address this... in 2015 or thereabouts.   Just in time for nobody to give a crap.

Azannoth's picture

I have not 'topped-up' my trading account in over 1 year, what I have there now I trade with, and see it as a lottery ticket

concurrently I have put 75% of my disposable income in silver/gold

John McCloy's picture

Interesting OT story. I was watching pawn stars and this old man with a beautiful 32 Lincoln worth upwards of 100k settled at 95k and traded it in instantly for 70 1 oz. Gold coins. At the time of the airing he said, "Gold is the best investment out there because the dollar is worthless"

  At the time Gold was 1350. So pops is up about 14k since sold his car. His paper would have been worth less than the 95k.

ReallySparky's picture

I plan on buying a lot of beautiful things like that Lincoln after the hard crash/reset.  I am sure that he is keeping track of his Lincoln and will buy it back later for an 1/8 of one of his  gold coins.

John McCloy's picture

Deflate it baby. Prudent savers should be rewarded with better prices for not being reckless. The Fed is trying to impose the opposite. The definition of moral hazard.

Azannoth's picture

The old saying buy low sell high, well I try, but everytime I see a stock that is down like 50% over the past few months and looks stable even in an uptrend, the minute I buy it starts going lower after 3 days it's usually down like 10% after 2 weeks like 30% and after 1 month another 50%, I just wish I could simply reverse all my trades than I'd be making monkey like 90% of the time :(

However the market is still up, WTF? I should have bought APPL ^^

Rynak's picture

I have not 'topped-up' my trading account in over 1 year, what I have there now I trade with, and see it as a lottery ticket

If you already are doing it just for fun, you may as well don't actually invest cash, and instead gamble via on of those stockmarket simulators (hint: Don't use VSM, it's buggy). You still get to play the game for fun, but take no financial damage. And if that sounds too boring to you, and you want there to be some "risk", turn it into a competition: Get someone else to play against you.... both put something into a pot, winner takes it all.

Quinvarius's picture

I think this would only be useful in generating an exit opportunity from an existing options position.  That is my thought after looking at it for about a minute.